Not the function of court to consider justness of tax: Madras High Court upholds Section 6 of Tamil Nadu Value Added Tax Act

The Madras High Court recently upheld the constitutional validity of Section 6 of the Tamil Nadu Value Added Tax Act, 2006 challenged by works contractors for being violative of Articles 14, 19 (1) (g), 20, 301 and 304 (a) of the Constitution [M/s LG Electronics India v The State of Tamil Nadu]..A Bench of Justices R Mahadevan and Mohammed Shafiq said that the economic wisdom of a tax is within the exclusive province of the legislature."It is not the function of the court to consider the propriety or justness of the tax or enter upon the realm of legislative policy," the Court said. The Court, therefore, upheld the provision stating that the hardship caused to an individual or a set of persons is irrelevant while considering the validity of a taxing statute.“The legislature in fiscal matters, enjoys a greater latitude and must be permitted to experiment. The presumption is always in favour of the constitutionality of a provision and the courts must seldom interfere,” the Court said. .The issue involved the validity of certain conditions to a composition scheme by which dealers engaged in works contract could discharge taxes. However, only those works contractors who did not have inter-state purchases, receive goods from outside the state or imports/goods from outside the country, were made eligible to opt for the composition scheme. This condition was stated to be arbitrary, discriminatory and violative of Article 14..The petitioners claimed that the amendment discriminated between co-developers, who used locally purchased goods and those who purchased goods from dealers outside the state. This was said to be forcing them to purchase goods from dealers within the state and therefore, violative of the rights guaranteed by the Constitution..The Court, however, disagreed with the petitioners stating that works contractors could only be considered a genus with different facets or species. It was held that dealers who purchased goods locally and those who bought goods by inter-state purchase or by import were not on equal footing despite being works contractors.“According to us, “works contractor” does not constitute a homogeneous class, but comprises different species. Works contractor can only be considered as a genus with different facets or species,” the Court said. .The division bench analysed the scope of judicial intervention in fiscal matters, and found that economic wisdom of a tax was within the exclusive province of the legislature. The bench underlined that it was not the function of the court to consider the justness of the tax. With this, it was held that there was a rationale behind the classification under Section 6 and since the enactment did not offend any constitutional right, the petitions challenging the vires of Section 6 were rejected..Senior Advocate Ramani and advocates K Vaitheeswaran, KJ Chandran, PV Sudhakar, PJ Rishikesh, KR Krishnan, N Inbarajan, Joseph Prabhakar, N Murali, R Hemalatha, NR Rajagopalan, R Kumar, S Ramanathan, V Sundarewaran, Aparna Nandakumar, P Rajkumar, B Raveendran, R Senniappan and Hema Muralikrishna represented the petitioners.Additional Advocate General Haja Nizudeen assisted by Government Advocate V Prashanth Kiran appeared for the respondents..[Read Judgment]